Addressing issues in China-Europe service

By Ma Bin Source:Global Times Published: 2017/3/2 0:18:39

Illustration: Peter C. Espina/GT

The rebranded China Railway Express has added fuel to the development of China-Europe express service. So far around 40 lines link Chinese cities in Northwest Xinjiang, North China's Inner Mongolia Autonomous Region and Northeast China to areas in Central Asia, Russia, Central Eastern and Western Europe.

While the China-Europe Railway Express service has expanded rapidly, the operation and performance of the lines varies considerably. The Chongqing-Xinjiang-Europe railway service is the best performer among the international cargo lines launched by China along the new Silk Road Economic Belt. It is estimated that Chongqing-Xinjiang-Europe cargo trains accounted for 45 percent of the total China-Europe express trains from the launch of the service to the end of the first half of 2016. Other lines either saw much fewer traffic or cargo trains return empty to China. The situation calls for an urgent need to address the problems that hinder the development of the China-Europe express service.

First and foremost, the government's role needs to be adjusted. As one of the priorities of China's One Belt and One Road initiative, the China-Europe express service has been expanded with the support of governments at central and local levels. But its long-term prospects can only be boosted if companies and the market play a major role in its construction and operations. As the service has been gradually put on the right track, an exit mechanism should be established to allow the government to step away from center stage and push companies to the forefront. As these firms emerge as competitors, it will lay a solid foundation for the long-term sustainable development of the China-Europe express service. In this process, local governments must adjust their role. In the early stage of the express service, local governments rolled out a slew of preferential policies to get the ball rolling. But there is no clear information or plan about when these preferential policies will be phased out. This ambiguity won't encourage market players to participate and support the operation.

Meanwhile, high transportation costs are another major challenge facing the China-Europe express service. Goods delivery via rail takes only a third of the time as sea route delivery but at twice the cost. For companies engaged in regular trade between China and Europe, shorter transportation time is not attractive enough. The reasons for the high costs of the China-Europe express service vary. It can involve the high costs of material and construction, customs clearance or technical and regulatory challenges where railways from different countries require changes of gauge. It can also be caused by extreme weather or shortage of supply. Most of the China-Europe railway lines rely on local government subsidies to keep costs low but such a model has obvious limits and cannot be sustained. Cutting costs is key if the service is to gain vitality and competitiveness.

Furthermore, there is a lack of coordination among China-Europe railway lines. Many cargo lines are designed to serve local interests and local economy. While there is nothing wrong with pushing these lines to serve the local economy, competition between the lines is rising. To get the targeted number of trains running, some local governments offer subsidies to beat down cost, which is not good for the long-term development of the service and does not align with the national interest. Additionally, coordination of transport need to be properly handled. With more China-Europe cargo lines being launched, transport via the new Eurasian Land-Bridge has switched course to use the Taiyuan-Zhongwei-Yinchuan railway line, which increases costs and undermines competitiveness.

The China-Europe railway service has entered a new stage where resources and networks need to be optimized to save costs and achieve efficiency. Efforts should be made to consolidate the dispersed transport systems and set up domestic distribution centers and regional ones in countries along the route.

Although the China-Europe railway lines run from China to Europe, the logistics, information and value networks they have created will bond the countries and regions along the route and allow them to share the mutual benefits. During the new stage of optimizing the service, China should work out a mechanism to allow local governments to gradually withdraw from the project and have a supervision mechanism in place. The role of the government and enterprises should be coordinated to optimize the efficiency of the railway service and nurture core competitiveness to lay a solid foundation for the Belt and Road initiative.